Citations
- 909 F. Supp. 2d 1225
Full opinion text
MEMORANDUM OPINION AND ORDER
JAMES 0. BROWNING, District Judge.
THIS MATTER comes before the Court on: (i) Defendants Hi-Land Potato Company Inc. and Carl Worley’s Motion for Summary Judgment Against Skyline Potato Company, Inc. and the Folson Farm Group, filed August 8, 2012 (Doc. 250); and (ii) Plaintiff and Interviewing Plaintiffs’ Joint Motion for Partial Summary Judgment and Incorporated Memorandum of Law, filed August 8, 2012 (Doc. 253). The Court held a hearing on September 27, 2012. The primary issues are: (i) whether Defendant Hi-Land Potato Company, Inc. (“Hi-Land Potato”) is a trust beneficiary of Defendant Tan-O-On Marketing, Inc.’s trust pursuant to the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a-t, (“PACA”); and (ii) whether Hi-Land Potato breached its duty as a co-beneficiary of Tan-O-On Marketing’s PACA trust when it received full payment for potato shipments that Tan-O-On Marketing arranged while the other PACA co-beneficiaries went unpaid. The Court concludes that, because a supplier becomes a beneficiary of a commission merchant’s, dealer’s, or broker’s PACA trust automatically upon transfer of the supplier’s produce’s title, Hi-Land Potato was a beneficiary of Tan-O-On Marketing’s PACA trust. The Court concludes that, in light of Tan-O-On Marketing operating out of Hi-Land Potato’s premises, Hi-Land Potato handling the billing, bookkeeping, and collection for its potato shipments Tan-O-On Marketing arranged, and Tan-O-On Marketing paying Hi-Land Potato fully for its potatoes, while other producers went unpaid, a genuine issue of material fact exists whether Hi-Land Potato violated the duty it owed its co-beneficiaries of Tan-O-On Marketing’s PACA trust by participating in Tan-O-On Marketing’s breach of the PACA trust. The Court thus cannot properly grant summary judgment on either motion.
FACTUAL BACKGROUND
This lawsuit arises from Defendant Tan-O-On Marketing’s failure to pay Plaintiff Skyline Potato Company, Inc. (“Skyline Potato”), and Intervening Plaintiffs Folson Farm Corporation, Mart Produce Corporation, Billingsley Produce Sales, Inc., Alsum Produce, Inc., and Peterson Bros. River Valley Farms, Inc. (together “Folson Farm Group”) for sales of potatoes they made to Tan-O-On Marketing between October and December 2009. During that time period, Tan-O-On Marketing paid Hi-Land for potatoes that Hi-Land shipped to customers between October and December 2009.
1. Background of the Parties.
This dispute arises out of Tan-O-On Marketing, a produce broker and sales agent, ceasing its business operations without paying fully the produce suppliers for whom it acted as a produce broker. See Deposition of Gerald Anderson at 57:11-25 (taken May 7-8, 2012), filed August 8, 2012 (Doc. 252-l)(“Anderson Depo.”). At all times material to this case, Skyline Potato and the Folson Farm Group were produce-sellers operating under valid PACA licenses issued by the United States Department of Agriculture (U.S.D.A.). See Affidavit of Bryan R. Fol-son, President and Treasurer of Folson Farm Corporation in Support of Plaintiff and Intervening Plaintiffs’ Motion for Summary Judgment ¶ 6, at 2, (executed July 24, 2012), filed August 8, 2012 (Doc. 253-5); Affidavit of Chod Sill, Sales Agent of Billingsley Produce Sales, Inc. in Support of Plaintiff and Intervening Plaintiffs’ Motion for Summary Judgment 1Í 6, at 2, (not executed), filed August 8, 2012 (Doc. 253-6); Affidavit of Jim McBride, Sales Manager of Mart Produce Corp. in Support of Plaintiff and Intervening Plaintiffs’ Motion for Summary Judgment ¶ 6, at 2, (executed July 18, 2012), filed August 8, 2012 (Doc. 253-7); Affidavit of Lawrence Alsum, President of Alsum Farms & Produce, Inc. Pk/a Alsum Produce, Inc. in Support of Plaintiff and Intervening Plaintiffs’ Motion for Summary Judgment ¶ 6, at 2, (executed July 24, 2012), filed August 8, 2012 (Doc. 253-8); Affidavit of Art Peterson, President of Peterson Bros. River Valley Farms, Inc. in Support of Plaintiff and Intervening Plaintiffs’ Motion for Summary Judgment ¶ 6, at 2, (executed July 24, 2012), filed August 8, 2012 (Doc. 253-9); Affidavit of Michael D. Jones, Chief Financial Officer of Skyline Potato Co. in Support of Plaintiff and Intervening Plaintiffs’ Motion for Summary Judgment ¶ 6, at 2, (executed July 27, 2012), filed August 8, 2012 (Doc. 253-10); Plaintiff and Intervening Plaintiffs’ Joint Motion for Partial Summary Judgment and Incorporated Memorandum of Law ¶ 16, at 8, filed August 8, 2012 (Doc. 253)(“Skyline and FFG’s MSJ”)(setting forth this fact); Defendant Hi-Land Potato Company Inc.’s Response to Plaintiff and Intervening Plaintiffs’ Motion for Partial Summary Judgment at 8, filed August 27, 2012 (Doc. 266)(“Response to Skyline and FFG’s MSJ”)(not disputing this fact). Hi-Land Potato has been a potato producer, shipping potatoes to customers such as Kroger Co. and Kroger Co.’s predecessor, King Soopers, for thirty-four years. See Declaration of Carla J. Worley ¶ 3, at 2, filed August 8, 2012 (Doc. 252-2)(“Carla Worley Decl.”); Defendants Hi-Land Potato Company Inc. and Carl Worley’s Motion for Summary Judgment Against Skyline Potato Company Inc. and the Folson Farm Group ¶ 2, at 5, filed August 8, 2012 (Doc. 250)(“Hi-Land Potato MSJ”)(setting forth this fact); Plaintiff and Intervening Plaintiffs’ Joint Opposition to Hi-Land Potato Company, Inc. and Carl Worley’s Motion [sic] Summary Judgment at 3, filed August 27, 2012 (Doc. 265)(“Response to Hi-Land Potato’s MSJ”). At all times material to this case, Tan-O-On Marketing’s income has been exclusively derived from produce sales. See Deposition of Carla Worley 23:13-25:21, 29:22-32:2' (taken May 17, 2012), filed August 8, 2012 (Doc. 253-3)(“Carla Worley Depo.”); Deposition of Shannon Casey 139:8-11, 144:8-12; 160:3-5, 214:11-16 (taken Oct. 22, 2010), filed August 8, 2012 (Doc. 253-l)(“2010 Shannon Casey Depo.”); Skyline and FFG’s MSJ ¶ 4, at 6 (setting forth this fact); Response to Skyline and FFG’s MSJ at 8 (not disputing this fact).
a. Tan-O-On Marketing.
Tan-O-On Marketing was involved in carrying on the business of buying wholesale quantities of perishable agricultural commodities — “produce”—from produce suppliers and reselling the produce to its customers. See Anderson Depo. at 57:11-25; Hi-Land Potato MSJ ¶ 1, at 5 (setting forth this fact); Response to Hi-Land Potato’s MSJ at 5 (not disputing this fact); Skyline and FFG’s MSJ ¶ 2, at 5 (setting forth this fact); Response to Skyline and FFG’s MSJ at 8 (not disputing this fact). Gerald Anderson organized Tan-O-On Marketing in the 1990s, with the company’s principal place of business located in Hi-Land Potato’s packing shed in Monte Vista, Colorado. See Anderson Depo. at 7:13-8:5; 8:22-11:3; Carla Worley Decl. ¶ 5, at 2-3; Hi-Land Potato’s MSJ ¶ 5, at 6 (setting forth this fact). Carl Worley served as a director of Tan-O-On Marketing at Anderson’s request until his resignation around 2005, but was never a shareholder or officer. See Anderson Depo. at 19:11-20:14; Carl Worley Deposition at 39:9-25 (taken May 16, 2012), filed August 8, 2012 (Doc. 252-4)(“Carl Worley Depo.”); Hi-Land Potato MSJ ¶ 6, at 6 (setting forth this fact); Response to Hi-Land Potato MSJ at 4 (not disputing this fact). In 2006, Anderson and his wife, Tan-O-On Marketing’s sole shareholders, sold the company to Shannon Casey, one of Tan-O-On Marketing’s salesmen. See Anderson Depo. at 50:4-24; 52:17-53:13; Hi-Land Potato’s MSJ ¶ 7, at 6 (setting forth this fact); Response to Hi-Land Potato’s MSJ at 4 (not disputing this fact). After Anderson sold Tan-O-On Marketing to Shannon Casey, he had no intention at any point to resume his involvement with Tan-O-On marketing at any time. See Anderson Depo. at 87:9-24; Hi-Land Potato’s MSJ ¶ 8, at 6 (setting forth this fact); Response to Hi-Land Potato’s MSJ at 6 (not disputing this fact).
Between 2006 and 2010, Tan-O-On Marketing’s President Shannon Casey managed and controlled Tan-O-On Marketing’s accounts payable and receivable, including payments from its checking accounts. See In re: Shannon P. Casey, Petitioner, No. 11-0131, 2011 WL 3645678, at **5-6 (USDA Jul. 6 2011) (findings of fact 4-7); Deposition of Shannon Casey 66:10-18 (taken May 15, 2012), filed August 8, 2012 (Doc. 253-13)(“2012 Shannon Casey Depo.”)(admitting to signing Kroger Co. vendor number in 2007); 2010 Shannon Casey Depo. at 18:10-19:4, 24:1-11, 50:25-51:6, 125:2-9, 133:21-24, 137:22-138:1, 160:3-5; Skyline and FFG’s MSJ ¶ 3, at 6 (setting forth this fact); Response to Skyline and FFG’s MSJ at 6 (not disputing this fact). By the end of 2008, conflict had developed between Shannon Casey and the Andersons regarding the “salary” and promissory note payments Shannon Casey had to pay to the Andersons, because of Tan-O-On Marketing’s level of profitability and the minimal duties that the Andersons had in Tan-O-On Marketing’s business. See 2012 Shannon Casey Depo. at 16:10-17:3 (Doc. 252-5); Hi-Land Potato’s MSJ ¶ 9 at 6 (setting forth this fact); Response to Hi-Land Potato’s MSJ at 4 (not disputing this fact). In May of 2009, Shannon Casey “fired” the Andersons from their positions, stopped paying their salaries, and actively began trying to find a way to buy out their rights in the promissory note, leaving Shannon Casey as the President and CEO of Tan-O-On Marketing and the Andersons with no continuing involvement. See Anderson Depo. at 83:22-84:21; 84:4-9; 85:18-87:2; 120:7-14; Hi-Land Potato’s MSJ ¶¶ 10-11, at 6-7 (setting forth this fact); Response to Hi-Land Potato’s MSJ at 4 (not disputing this fact). In early 2009, Bank of Albuquerque, the bank at which Tan-O-On Marketing had historically maintained its bank accounts, did not renew Tan-O-On Marketing’s line of credit, leaving Tan-O-On Marketing to rely exclusively on its receivables to pay its bills. See 2012 Anderson Depo. at 26:3-27:15; 46:19-47:9; 91:2-18; 2012 Shannon Casey Depo. at 8:8 — 9:6; 10:19-11:10; 45:3-6; 2010 Shannon Casey Depo. at 94:7-96:7; 132:18-21; 192:14-193:5; 218:17-219:12; 219:23-221:1; Skyline and FFG’s MSJ ¶ 5, at 6 (setting forth this fact); Response to Skyline and FFG’s MSJ at 6.
b. Hi-Land Potato.
Tan-O-On Marketing acted as a sales agent for Hi-Land Potato from the 1990s to the end of 2009. In this sales agency-relationship, Tan-O-On Marketing arranged sales to customers, but Hi-Land Potato shipped the potatoes directly from its shed to the customers. Because of these direct shipments, Hi-Land Potato has known the names of the end customers of its potatoes, and had direct contact and relationships with the customers. See Anderson Depo. at 64:23-66:17; Carla Worley Decl. ¶¶ 6-7; Purchase Order (Printed December 31, 2008), filed August 8, 2012 (Doc. 252-3)(“Dec. 31, 2008 Purchase Order”); Hi-Land Potato MSJ ¶ 3, at 6 (setting forth this fact). Hi-Land Potato and Metz Potato Company (“Metz Potato”), one of Hi-Land Potato’s neighbor produce suppliers, were Tan-O-On Marketing’s “principal shippers.” Anderson Depo. at 8:6-14. See Hi-Land Potato’s MSJ ¶ 4, at 5 (setting forth this fact); Response to Hi-Land Potato’s MSJ at 3 (noting that Anderson testified that “Hi-Land and Metz were TMI’s ‘principal suppliers.’ ”).
2. The Business Operations of Tan-O-On Marketing at Issue.
In mid-October 2009, Shannon Casey traveled to Monte Vista to meet with Hi-Land Potato’s principals to ask if Tan-O-On Marketing could establish an office at Hi-Land Potato’s packing shed. See 2012 Shannon Casey Depo. at 18:25-20:9; Hi-Land Potato’s MSJ ¶ 12, at 7 (setting forth this fact). An agreement was reached shortly after the meeting with Carla Worley, a principal of Hi-Land Potato; in lieu of rent for the office space, telephone, and internet provided to Tan-O-On Marketing, Tan-O-On Marketing would give Hi-Land Potato a discount from 25 cents to 22 cents per hundredweight of potatoes on Tan-O-On Marketing’s fee. See 2012 Shannon Casey Depo. at 21:2-15; 218:12-23; Carla Worley DeclA 9, at 4; Hi-Land Potato’s MSJ ¶ 13, at 7 (setting forth this fact). Hi-Land Potato also agreed, as part of this arrangement, to Shannon Casey’s request that Hi-Land Potato start handling the billing, bookkeeping, and collection for the shipments of Hi-Land Potato’s and Metz Potato’s potatoes that Tan-O-On Marketing had arranged. Hi-Land Potato saw this arrangement as a benefit, because it would eliminate the confusion, mistakes, and payment delay that Hi-Land Potato had experienced in their relationship with Tan-O-On Marketing during the previous year. See Carla Worley Decl. ¶ 9, at 4; Hi-Land Potato’s MSJ ¶ 15, at 7 (setting forth this fact).
PROCEDURAL BACKGROUND
Skyline Potato filed its First Amended Petition and Complaint, Prayer for Declaratory Relief and Piercing the Corporate Veil, on July 23, 2010. See Doc 2 (“Skyline Complaint”). The Folson Farm Group filed their Complaint in Intervention on July 8, 2011. See Doc. 60 (“FFG Complaint”). Skyline Potato and the Folson Farm Group allege that Tan-O-On Marketing and Hi-Land Potato were engaged in a scheme by which Hi-Land Potato knew it was receiving payment to the detriment of Tan-O-On Marketing’s other PACA trust creditors. Skyline Potato and the Folson Farm Group assert that Tan-O-On’s obligations under PACA extend to Hi-Land Potato. Skyline Potato and the Folson Farm Group demand that Hi-Land Potato disgorge sufficient funds to pay the entire amount of Skyline Potato’s and the Folson Farm Group’s claims against Tan-O-On Marketing. Skyline Potato and the Folson Farm Group allege that Tan-O-On Marketing transferred PACA trust assets to Hi-Land and that any such transfers are a breach of the PACA trust. See Skyline Complaint ¶ 87, at 13; FFG Complaint ¶¶ 41-42, at 10. Skyline Potato qualifies this assertion by noting that the transfers were “made to Hi-Land in preference of other PACA trust creditors,” Skyline Complaint ¶ 87, at 13; this statement acknowledges that Hi-Land Potato was a PACA creditor as well. The Folson Farm Group asserts that “Hi-Land must hold any PACA Trust Assets having come into its possession as a trustee for the benefit of [the Folson Farm Group],” FFG Complaint ¶ 43, at 10, and seeks as damages against Hi-Land Potato the full amount it contends Tan-O-On Marketing owes it, $343,159.40, plus interest from the date each invoice to Tan-O-On Marketing became past due, costs, and attorneys’ fees, less any monies it receives from the PACA trust assets, see FFG Complaint ¶¶ 43-44, at 10.
Hi-Land Potato and Worley move the Court, pursuant to rule 56 of the Federal Rules of Civil Procedure, for an order granting summary judgment in their favor on all of the claims asserted against them in Skyline Potato’s First Amended Complaint and Folson Farm’s Complaint. See Hi-Land Potato MSJ at 1. Skyline Potato and the Folson Farm Group move the Court, pursuant to rule 56, for an order granting partial summary judgment in their favor on whether Hi-Land Potato unlawfully received PACA trust assets. See Skyline and FFG’s MSJ at 3.
The Court held a hearing on September 27, 2012. The parties began by agreeing that Skyline Potato and the Folson Farm Group have abandoned all of their claims except for the PACA claims. See Transcript of Hearing at 4:21-5:14 (September 27, 2012)(Bohnhoff, Court, Jaramillo, Esquivel) (“Tr.”). Hi-Land Potato began by stating that it contends it is undisputed that the funds Tan-O-On Marketing received for Hi-Land Potato’s produce, that it used to pay Hi-Land Potato, were kept separate from the money that Tan-O-On Marketing received for other sellers’ produce. See Tr. at 6:6-25 (Bohnhoff). Hi-Land Potato also stated what it contended were the undisputed facts and the parties’ arguments, and argued that there is no evidence to support Skyline Potato and the Folson Farm Group’s claim that Hi-Land Potato had an agreement with and acted in concert with Tan-O-On Marketing to ensure that Hi-Land Potato was paid before any of the Tan-O-On Marketing’s other produce sellers. See Tr. at 7:9-19 (Bohnhoff). The most that Skyline Potato and the Folson Farm Group can contend, Hi-Land Potato argued, is that Hi-Land Potato knew that it was receiving preference payments, but that a PACA creditor’s knowledge that it is “receiving a preference payment even from an [insolvent] debtor ... [does not] establish a fraudulent transfer.” Tr. at 7:25-8:19 (Bohnhoff).
Hi-Land Potato contended that the following undisputed facts make it a trust beneficiary under PACA as a matter of law: Hi-Land Potato shipped $1.66 million worth of potatoes, Tan-O-On Marketing was paid $1.66 million for that shipment, and then Tan-O-On Marketing paid $1.66 million to Hi-Land Potato for those shipments. See Tr. at 8:20-9:11 (Bohnhoff). With regard to Skyline Potato and the Folson Farm Group’s argument that Hi-Land Potato was not a trust beneficiary because it failed to invoice Tan-O-On Marketing or otherwise provide statutory notice of its intent to preserve PACA benefits, Hi-Land Potato argued that, because Hi-Land Potato was a paid seller rather than an unpaid seller, under PACA it did not have to do anything to preserve its right as a beneficiary. See Tr. at 9:22-10:18 (Bohnhoff). A paid seller, Hi-Land Potato argued, does not need to do anything to preserve its benefits under PACA, because PACA operates to give an unpaid seller benefits over non-produce seller creditors. See Tr. at 10:18-21 (Bohnhoff). Hi-Land Potato argued that Skyline Potato and the Folson Farm Group are attempting to assert that, to preserve its rights as a PACA trust beneficiary, Hi-Land Potato has to prove that it was paid within forty days. See Tr. at 11:2-9 (Bohnhoff). Hi-Land Potato contended that Skyline Potato and the Folson Farm Group, as the Plaintiffs in this case asserting that Hi-Land Potato is not a trust beneficiary, are thus trying to shift the burden. See Tr. at 11:12-17 (Bohnhoff). Rather, because this action is at the summary judgment stage, with the burden at summary judgment on the same party it will be at trial, Hi-Land Potato asserted that it is Skyline Potato’s and the Folson Farm Group’s burden to establish as an undisputed material fact that Hi-Land Potato was not paid by Tan-O-On Marketing within forty days of shipment. See Tr. at 11:18-25 (Bohnhoff). Alternatively, Hi-Land Potato argued, even if the burden is Hi-Land Potato’s, Skyline Potato and the Folson Farm Group “still had to at least identify the issue, [that there was] no payment within 40 days, in their statements of fact in their original summary judgment,” because, while a party does not need to affirmatively present evidence to meet its burden, it “still need[s] to assert that there is no evidence on the part of the opposing party.” Tr. at 13:3-11 (Bohnhoff).
RELEVANT LAW REGARDING PACA
Congress enacted PACA in 1930 “to prevent unfair business practices and promote financial responsibility in the fresh fruit and produce industry.” Boulder Fruit Exp. & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d 1268, 1271 (9th Cir.2001) (citing Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir.1997)). Congress amended PACA in 1984 to “protect the public interest,” and to remedy the problem of suppliers or sellers of produce being the last to get paid by an insolvent merchant, dealer, or broker, “caused by financing arrangements under which commission merchants, dealers, or brokers, ... encumber or give lenders a security interest in ... any receivables or proceeds from the sale of such commodities or products.... ” 7 U.S.C. § 499e(c)(l). Congress created the PACA trust, defined in § 499e(e)(2), as a remedy:
Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents.
7 U.S.C. § 499e(e)(2). “Congress explained that ‘the purpose of the trust is to increase the legal protection for unpaid sellers and suppliers of perishable agricultural commodities until full payment of sums due have been received by them.’ ” H.C. Schmieding Produce v. Alfa Quality Produce, 597 F.Supp.2d 313, 315-16 (E.D.N.Y.2009) (quoting “R” Best Produce, Inc. v. Shulman-Rabin Marketing Corp., 467 F.3d 238, 241 (2d Cir.2006))(internal alterations omitted).
1. Creation and Participation in the PACA Trust.
“Statutory construction must begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.” Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194, 105 S.Ct. 658, 83 L.Ed.2d 582 (1985) (citing American Tobacco Co. v. Patterson, 456 U.S. 63, 68, 102 S.Ct. 1534, 71 L.Ed.2d 748 (1982)). In construing § 944e to determine the scope of the statutory trust, the Court must read the statute as a whole, rather than reading only § 944e(e)(2). See United States v. Atl. Research Corp., 551 U.S. 128, 135, 127 S.Ct. 2331, 168 L.Ed.2d 28 (2007) (“Statutes must be read as a whole.”)(quoting King v. St. Vincent’s Hospital, 502 U.S. 215, 221, 112 S.Ct. 570, 116 L.Ed.2d 578 (1991)). Section 499e(c), paragraphs 2-4, of Title 7 of the United States Code provides:
(2) Perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents. Payment shall not be considered to have been made if the supplier, seller, or agent receives a payment instrument which is dishonored. The provisions of this subsection shall not apply to transactions between a cooperative association, as defined in section 1141j(a) of Title 12, and its members.
(3) The unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary, (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored. The written notice to the commission merchant, dealer, or broker shall set forth information in sufficient detail to identify the transaction subject to the trust. When the parties expressly agree to a payment time period different from that established by the Secretary, a copy of any such agreement shall be filed in the records of each party to the transaction and the terms of payment shall be disclosed on invoices, accountings, and other documents relating to the transaction.
(4) In addition to the method of preserving the benefits of the trust specified in paragraph (3), a licensee may use ordinary and usual billing or invoice statements to provide notice of the licensee’s intent to preserve the trust. The bill or invoice statement must include the information required by the last sentence of paragraph (3) and contain on the face of the statement the following: “The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”.
The first step in construing a statute requires the court to “determine whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute in the case.” Robinson v. Shell Oil Co., 519 U.S. 337, 340, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997). The inquiry stops there “if the statutory language is unambiguous and ‘the statutory scheme is coherent and consistent.’ ” Robinson v. Shell Oil Co., 519 U.S. at 340, 117 S.Ct. 843 (citing United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)). Whether the statutory language is plain on its face or ambiguous “is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. at 341, 117 S.Ct. 843 (citing Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 477, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992)).
a. The PACA Trust Arises Automatically and the Produce Supplier is a PACA Beneficiary Upon Transfer of the Produce’s Title.
Read in the context of the statute as a whole, the required notice provisions of § 499e(c)(3) and § 499e(c)(4) support the interpretation that the PACA trust arises automatically and a produce supplier becomes a PACA beneficiary upon transfer of title to the produce. This conclusion follows from the language that, if an unpaid supplier does not abide by the notice provisions within the statutory time period — if it does not “preserve” its benefits — it “lose[s]” the benefits of the trust with regard to that particular shipment:
The unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in the regulations issued by the Secretary, (ii) after the expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored.
7 U.S.C. § 499e(e)(3) (emphasis added). The PACA statute as a whole, however, is silent as to anything a supplier needs to do beyond being a supplier to become a PACA beneficiary. Because the PACA notice provisions in § 499e(c)(3) and § 499e(c)(4) operate to strip the PACA beneficiary of the PACA trust benefits unless the beneficiary acts to retain the benefits, the supplier had to have been a PACA beneficiary to lose the benefits. Section 499e(c)(4) provides an additional method to “preserve” the PACA benefits. See § 499e(c)(4) (“In addition to the method of preserving the benefits of the trust specified in paragraph (3), a licensee may use ordinary and usual billing or invoice statements to provide notice of the licensee’s intent to preserve the trust benefits .... ”)(emphasis added). The required notice provisions of § 499e(c)(3) and § 499e(c)(4), therefore, support the interpretation that a supplier automatically granted PACA beneficiary status upon sale of the produce.
The United States Courts of Appeal have also found that suppliers become PACA trustees automatically upon sale of the produce. The United States Court of Appeals for the Ninth Circuit has stated:
The trust automatically arises in favor of a produce seller upon delivery of produce and is for the benefit of all unpaid suppliers or sellers involved in the transaction until full payment of the sums owing has been received.
In re Milton Poulos, Inc., 947 F.2d 1351, 1352 (9th Cir.1991) (citing 7 U.S.C. § 499e(c)(2)). See Patterson Frozen Foods, Inc. v. Crown Foods Intern., Inc., 307 F.3d 666, 669 (7th Cir.2002) (“This floating trust is automatically created when the dealer accepts the goods so long as the supplier complies with the specific notice requirements set out in 7 U.S.C. § 499e(c) and 7 C.F.R. § 46.46(f).”)(citing Greg Orchards & Produce, Inc. v. Roncone, 180 F.3d 888, 890-91 (7th Cir.1999)). D.M. Rothman & Co., Inc. v. Korea Commercial Bank of New York, 411 F.3d 90, 96 (2d Cir.2005) (“[A] PACA trust is automatically established each time a broker or merchant purchases perishable commodities upon credit....”); Skone & Connors Produce, Inc. v. Panattoni, 37 F.3d 1506, *1 (9th Cir.1994) (unpublished table opinion)(“When Skone & Connors Produce, Inc. delivered potatoes to FreshPict’s client a nonsegregated trust was automatically created under the Perishable Agricultural Commodities Act (PACA).”).
b. The Statute Creates a Single PACA Floating Trust for the Benefit of All Beneñciaries.
Section § 499e(c)(2) covers “commodities received ... in all transactions,” but also states that the proceeds and receivables “shall be held ... in trust for the benefit of all unpaid suppliers or sellers ... involved in the transaction until full payment of the sums owing in connection with such transactions.” 7 U.S.C. § 499e(c)(2) (emphasis added). Throughout § 499e(c)(3) and § 499e(c)(4), Congress refers only to “such trust” or “the trust.” On the other hand, it might be possible to interpret § 499e(c)(4) as providing for multiple PACA trusts, reading the language that “[t]he seller of these commodities retains a trust claim over these commodities” to provide for separate trusts for each individual contract or shipment. 7 U.S.C. § 499e(c)(4). The language “[t]he seller of these commodities retains a trust claim over these commodities” may also be construed, however, as a means of including each shipment in the trust’s res and preserving the extension of the PACA trusts benefits to each shipment. 7 U.S.C. § 499e(c)(4). Thus, rather than creating a separate PACA trust for each shipment, failing to provide the seller with the notice required by § 499e(c)(3) or § 499e(c)(4) results in the particular shipment not being covered under the PACA trust, and thus not counting toward the supplier’s pro rata share. If, on the other hand, the statute were to provide multiple individual PACA trusts for each shipment, tracing would become a necessary and a principle part of recovering PACA trust assets. With multiple individual PACA trusts, the proceeds of each produce shipment would become trust assets of a distinct PACA trust. For a PACA beneficiary to enforce its PACA trust benefits when the trustee misses payments for a shipment, the supplier would necessarily have to trace the PACA trustee’s assets to prove that such assets are the proceeds of its individual PACA trust. Such tracing would be necessary so that the assets of one PACA trust could be distinguished from the assets of other beneficiaries’ PACA trusts, or even the beneficiary’s separate PACA trusts for which the PACA trustee has not missed payments. More likely, by including the language “these commodities” only in the notice provisions and excluding it from the provision creating the PACA trust, Congress intended that, if a supplier is not diligent in giving the PACA trustee notice of its intent for a shipment to be part of the PACA trust, the PACA trust benefits do not extend to that particular shipment. See Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 62, 126 S.Ct. 2405, 165 L.Ed.2d 345 (2006) (“We normally presume that, where [Congress’] words differ ..., ‘Congress acts intentionally and purposely in the disparate inclusion or exclusion.’ ”)(quoting Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983)).
The Court’s conclusion that there is one singular* PACA trust comports with the United States Department of Agriculture’s regulations interpreting the statutory trust in § 499e(2). The Department of Agriculture has interpreted the statute to create a single PACA trust, stating that “[t]rust assets are to be preserved as a nonsegregated ‘floating’ trust.” 7 C.F.R. § 46.46(b). This nonsegregated floating trust permits the commingling of trust assets. The Department of Agriculture notes that its regulations interpreting the statutory trust and identifying it specifically as a floating trust “clarifies the intent of Congress.” Regulations Under the Perishable Agricultural Commodities Act; Addition of Provisions To Effect a Statutory Trust, 49 Fed.Reg. 45,735, 45,738 (Nov. 20, 1984). Thus, the Department of Agriculture designed the statutory trust regulations to effect what it saw as Congress’ intent in its 1984 amendments to PACA that created the trust:
Section 5(c)(2) impresses a trust for the benefit of all unpaid sellers or suppliers on perishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions ... and any receivables or proceeds from the sale of such commodities or products until full payment is made of the sums owing in connection with such transactions .... The trust impressed by section 5(c)(2) is a nonsegregated ‘floating trust’ made wp of all a firm’s commodity related liquid assets, under which there may be a commingling of trust assets .... Since commingling is contemplated, all trust assets would be subject to the claims of unpaid seller-suppliers and agents to the extent of the amount owed them.
H.R.Rep. No. 98-543, at 5 (emphasis added). Because the regulations interpreting the statutory trust in § 499e(2) comport with the Court’s construction of the statute’s plain language and with the intent expressed in the House Report, the Department of Agriculture’s definition of the trust in 7 C.F.R. § 46.46(b) is a reasonable statutory interpretation. The Supreme Court has directed federal courts to accept a government agency’s reasonable interpretation of a statute where Congress has intentionally left the interpretation to the agency. See Chevron, U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 845, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) (“If this choice represents a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.”)(quoting United States v. Shimer, 367 U.S. 374, 382, 81 S.Ct. 1554, 6 L.Ed.2d 908 (1961)). The Court therefore concludes that the Department of Agriculture’s definition of the PACA trust in 7 C.F.R. § 46.46(b) as a single ongoing floating trust is entitled to the Court’s deference.
The House Report’s stated intent that a supplier automatically becomes a participant in the trust suggests the construction of the statute to create a single ongoing PACA trust.
As each supplier, seller, or agent transfers ownership, possession, or control of perishable agricultural commodities to a commission merchant, dealer, or broker, such supplier, seller, or agent will automatically become a participant in the trust. Trust participants who file, in accordance with the provisions of this act, to preserve their right to benefits remain trust beneficiaries until they have received payment in full. When Payment is received for individual produce shipments the amount of the trust will be reduced accordingly.
H.R.Rep. No. 98-543, at 5 (1983) reprinted in 1983 U.S.C.C.A.N. 405, 408 (emphasis added). Congress stated that a supplier automatically “becomes a participant in the trust,” rather than stating that a PACA trust is automatically created. The Court believes that Congress did so purposefully and intentionally, concluding that Congress’ purpose was to provide a single ongoing trust rather than individual separate trusts created each time a supplier ships its produce.
The United States Court of Appeals for the Second Circuit’s conclusion that “a single PACA trust exists for the benefit of all of the sellers to a Produce Debtor, and continues in existence until all of the outstanding beneficiaries have been paid in full,” supports the Court’s conclusion. In re Kornblum & Co., Inc., 81 F.3d 280, 286 (2d Cir.1996). The Second Circuit, tasked with interpreting whether § 499e(c)(2) created a single trust or multiple trusts, noted that all of the language in the statutory provision counsels in favor of a single trust, except the phrase “involved in the transaction.” 81 F.3d at 286 (quoting 7 U.S.C. § 499e(e)(2)). The Second Circuit construed this phrase “as having the meaning, in context, of ‘involved in any such transaction,’ thereby harmonizing with the balance of the language in § 499e(c)(2).” In re Kornblum & Co., Inc., 81 F.3d at 286. The Second Circuit concluded that this construction is reasonable based on the fact that the rest of the language in § 499e(c)(2) refers to “all transactions”:
As previously noted, § 499e(c)(2) directs that
commodities received ... in all transactions, and all inventories of food or other products derived [therefrom], and any receivables or proceeds from the sale of such commodities or products, shall be held ... in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received.
[7 U.S.C. § 499e(e)(2) ] (emphasis added). All of the emphasized language points to a single, undifferentiated trust for the benefit of all sellers or suppliers of Produce except the phrase “involved in the transaction,” which we do not read as countermanding the clear import of the balance of the statutory language.
81 F.3d at 286. The Second Circuit’s construction is reasonable, because by providing that “commodities ... [of] all transactions ... and any receivables or proceeds from the sale of such commodities” shall be held in trust, it is reasonable to conclude that Congress intended to make one trust with the res consisting, of the proceeds of all transactions. The Second Circuit also noted that its interpretation was proper under Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., because “the regulation ... implementing] the statutory trust, 7 C.F.R. § 46.46, clearly delineates a single, undifferentiated trust for the benefit of all sellers and suppliers.” In re Kornblum & Co., Inc., 81 F.3d at 286.
2. Required Notice for the Continuation of PACA Trust Benefíts.
Although a supplier becomes a PACA trust beneficiary automatically upon the merchant’s, dealer’s, or broker’s acceptance of the goods, the supplier’s protection as a PACA trust beneficiary for the commodities shipped in the particular transaction requires that the supplier provide the PACA trustee the notice required in § 499e(c)(3) or § 499e(c)(4). See 7 U.S.C. § 499e(c)(3-4). The Ninth Circuit has held: “The unpaid supplier loses the benefits of the trust unless [it] gives written notice of ... intent to preserve the benefits of the trust to the produce dealer and files the notice with the United States Department of Agriculture (“USDA”) within the statutorily prescribed time period.” In re Milton Poulos, Inc., 947 F.2d at 1352-53 (citing 7 U.S.C. § 499e(c)(3)). See In re Lombardo Fruit and Produce Co., 12 F.3d 110, 112 (8th Cir.1993) (“[T]he unpaid supplier or seller loses the benefits of the trust protection unless it ‘has given written notice of intent to preserve the benefits of the trust....’”). See also 49 Fed.Reg. at 45,738 (“The legislation is clear that an absolute precondition to pursuing trust assets held by a defaulting buyer or receiver is the filing of a written notice by the seller, supplier or agent after a failure to pay within the prescribed time periods has elapsed.”). To remain entitled to PACA benefits and the privilege of being escalated to a priority creditor, a PACA beneficiary must adhere to the statutory requirements. See Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 203 (3d Cir.1998) (“The plain language of section 499e(c)(3), in particular Congress’s use of the term ‘shall,’ unambiguously requires that an agreement to extend the payment term be in writing in order for the seller to preserve its PACA trust benefits.”).
If a PACA beneficiary does not adhere to the statutory requirements, the PACA beneficiary loses its trust benefits and becomes an unsecured creditor of the PACA trustee. See In re Lombardo Fruit and Produce Co., 12 F.3d at 114. In In re Lombardo Fruit and Produce Co., the United States Court of Appeals for the Eighth Circuit held that a shipper who could not prove that it strictly adhered to the statutory notice requirements in § 499e(c)(3) or § 499e(e)(4) had lost “its entitlement to PACA trust protection,” and could not collect payments from trust assets in front of the secured creditors of the trustee. 12 F.3d at 114. The supplier submitted a letter from the supplier as evidence of a written agreement to extend the payment period from ten days to thirty days. See 12 F.3d at 113. Because the letter was undated, however, the Eighth Circuit found this insufficient proof that the parties “ ‘expressly agreed to [extend the deadline] in writing before entering into’ the underlying transaction for produce.” In re Lombardo Fruit and Produce Co., 12 F.3d at 113 (quoting 7 U.S.C. § 499e(c)(3)(ii))(emphasis in original). The Eighth Circuit held that the supplier’s failure to strictly adhere to the statute in preserving its PACA beneficiary status resulted in loss of its ability to enforce the trust benefits and to enjoin the PACA trustee’s secured creditor from exercising its priority interest in the PACA trustee’s accounts receivable. See In re Lombardo Fruit and Produce Co., 12 F.3d at 112.
3. General Trust Law Principles Apply to PACA Trusts.
The United States Circuit Courts of Appeal, in construing PACA, have uniformly held that “[t]he interpretation of PACA trust interests is guided by general trust principles to the extent there is no conflict with the statute.” In re Arctic Exp. Inc., 636 F.3d 781, 798 (6th Cir.2011) (quoting Consumers Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d 1374, 1381 (3d Cir.1994)). See R Best Produce, Inc. v. Shulman-Rabin Marketing Corp., 467 F.3d 238, 242 (2d Cir.2006) (noting that the Second Circuit has “previously noted that PACA trusts are ‘governed by general principles of trust law.’ ”)(quoting Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612, 615 (2d Cir. 1998)); Bear Mountain Orchards, Inc. v. Mich-Kim, Inc., 623 F.3d 163, 167 (3d Cir.2010) (“General trust principles of trust law apply to trusts created under PACA ....”) (quoting Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591, 595 (4th Cir.2010)); Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Vegetable Co., Inc., 336 F.3d 410, 413 (5th Cir.2003) (“General principles of trust law govern PACA trusts.”); Boulder Fruit Exp. & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d at 1271 (“We apply general trust principles to questions involving the PACA trust, unless those principles directly conflict with PACA.”); Gargiulo v. G.M. Sales, Inc., 131 F.3d 995, 999 (11th Cir. 1997) (“General principles of trust law govern the PACA trust....”). This interpretation is sound, because § 499e(2) expressly uses the word trust, thus indicating Congress intended the PACA trusts to be administered under general trust principles like any other trust. See In re Arctic Exp. Inc., 636 F.3d at 794 (6th Cir.2011) (noting that “common law principles apply to the formation of [Congress’ numerous] statutory trusts”).
The United States Circuit Courts of Appeal have consistently looked to the Restatement of the Law of Trusts to provide the general principles of trust law. “[A] trust involves three elements: (1) a trustee, who holds the trust property and is subject to duties to deal "with it for the benefit of one or more others; (2) one or more beneficiaries, to whom and for whose benefit the trustee owes the duties with respect to the trust property; and (3) trust property, which is held by the trustee for the beneficiaries.” In re Arctic Exp. Inc., 636 F.3d at 794 (quoting Restatement (Third) of Trusts § 2, cmt. f). Thus, in Consumers Produce Co. v. Volante Wholesale Produce, Inc., the United States Court of Appeals for the Third Circuit held that, because the transferee met the requirements in Restatements (Second) of Trusts § 284, which exempts a third-party transferee from liability where the third-party is a bona fide purchaser for value without notice that the transfer was in breach of the trust, the transferee was not required to disgorge the payments made in breach of the PACA trust. See 16 F.3d at 1385. Similarly, in C.H. Robinson Co. v. Trust Co. Bank, N.A., the United States Court of Appeals for the Eleventh Circuit concluded that the district court erred in determining that a third-party transferee with knowledge of the existence of the PACA trust was required to disgorge payments made in breach of the trust, because the court did not faithfully apply general trust law principles:
First, the district court erred in its conclusion that transferee liability under traditional trust law turns on “actual knowledge of the trust.” ... A transferee takes property free of trust if he received it for value and without notice of the breach of trust. “If the trustee transfers trust property in breach of trust to a transferee for value, the transferee takes free of the trust although he had notice of the existence of the trust, unless he has notice that the trustee is committing a breach of trust in making the transfer.” Restatement (Second) of Trusts § 296.... Second, the district court erroneously created an exception to general trust principles by imposing transferee liability upon lenders which happen to have a security interest in trust assets. We conclude that such an exception is inconsistent with established precedent and the intent of Congress.
C.H. Robinson Co. v. Trust Co. Bank, N.A, 952 F.2d 1311, 1314 (11th Cir.1992) (emphasis in original).
Under general trust principles, because the merchant’s, dealer’s, or broker’s proceeds from the sales of produce commodities under PACA are held in trust for the suppliers as PACA trust beneficiaries, the merchant, dealer, or broker becomes a PACA trustee subject to a trustee’s fiduciary duties. “An individual who is in a position to control the assets of the PACA trust and fails to preserve them, may be held personally liable to the trust beneficiaries for breach of fiduciary duty.” See Coosemans Specialties, Inc. v. Gargiulo, 485 F.3d 701, 705 (2d Cir.2007). See Weis-Buy Servs., Inc. v. Paglia, 411 F.3d 415, 422 (3d Cir.2005) (analyzing whether the plaintiffs claim against the PACA trustee faded, because the statute of limitations for a trustee’s breach of fiduciary duty claim had run). “PACA trust rights may be enforced ... through a court action for breach of fiduciary trust ... permitting] recovery against both the corporation and its controlling officers.” Patterson Frozen Foods, Inc. v. Crown Foods Intern., Inc., 307 F.3d 666, 669 (7th Cir.2002) (citing Golman-Hayden Co. v. Fresh Source Produce, Inc., 217 F.3d 348, 351 (5th Cir.2000)). See Farm-Wey Produce, Inc. v. Wayne Bowman Co., Inc., 973 F.Supp. 778, 785 (E.D.Tenn.1997) (concluding that PACA trustee did not violate its fiduciary duty as a trustee, because it did not violate its duty under Restatement (Second) of Trusts § 174, “to exercise the skill and care of a person of ordinary prudence ... in dealing with his own property”).
4. PACA Beneñciaries’ Protections and Remedies To Prevent the Dissipation of Funds.
The PACA trust was created to protect a supplier and PACA beneficiary by ensuring that the assets of the trust, the proceeds from the shipment of produce, are not dissipated before the suppliers are paid. The first protection for suppliers from a merchant’s, dealer’s, or broker’s dissipation of PACA trust funds is to seek an injunction. Section 499e(5) provides the equitable remedies available to suppliers under PACA: “The several district courts of the United States are vested with jurisdiction specifically to entertain (i) actions by trust beneficiaries to enforce payment from the trust, and (ii) actions by the Secretary to prevent and restrain dissipation of the trust.” 7 U.S.C. § 499e(c)(5). Dissipation is defined as “any act or failure to act which could result in the diversion of trust assets or which could prejudice or impair the ability of unpaid suppliers, sellers, or agents to recover money owed in connection with produce transactions.” 7 C.F.R. § 46.46. Courts have construed § 499e(5) to mean that both the Secretary of Agriculture and district courts can enjoin a merchant, dealer, or broker, to prevent the dissipation of trust assets. See Tanimura & Antle, Inc. v. Packed Fresh Produce, 222 F.3d 132, 137 (3d Cir.2000) (“§ 499e(c)(5)(ii) ... authorizes the district court to entertain ... injunctive relief on behalf of trust beneficiaries, thereby adding to, instead of detracting from, available common law remedies.”)(reversing the district court for failing to enjoin dissipation of PACA trust funds); Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154, 158 (11th Cir.1990) (“[W]e find the district court’s interpretation of Section 499e(c)(4), as limiting injunctive relief to suits brought by the Secretary, to be incorrect.”). See also JSG Trading Corp. v. Tray-Wrap Inc., 917 F.2d 75, 79 (2d Cir.1990) (noting that the court saw “nothing in the Act that would prohibit the court from exercising its traditional equity powers to grant a preliminary injunction at the instance of a private litigant if the normal standards for such relief are met”).
The second protection to PACA beneficiaries is their priority interest in the PACA trust’s assets. Congress designed the 1984 amendment to PACA to provide PACA trust beneficiaries with a superior interest in the PACA trust assets over creditors with security interests in those same assets, allowing the suppliers to recover first in the merchant’s, dealer’s, or broker’s, — the PACA trustee’s — bankruptcy. Thus, “a PACA trustee holds legal title to PACA trust assets but the seller retains an equitable interest in the assets pending full payment, so that the Bankruptcy Code excludes PACA trust assets from the PACA trustee’s bankruptcy estate.” C.H. Robinson Co. v. Alanco Corp., 239 F.3d 483, 487 (citing In re Kornblum, 81 F.3d at 284; In re San Joaquin Food Serv., Inc., 958 F.2d 938, 939 (9th Cir.1992)). As amongst beneficiaries, when a PACA trustee becomes insolvent, the legislative intent suggests, and courts have enforced PACA to require, the trust’s assets are distributed first to the PACA beneficiaries pro rata. See In re Milton Poulos, Inc., 947 F.2d 1351, 1353 (9th Cir.l991)(holding that all suppliers who had “properly perfected their PACA trust rights [] are entitled to their pro rata share of the trust assets”); H.C. Schmieding Produce Co., Inc. v. Alfa Quality Produce, Inc., 597 F.Supp.2d at 316 (“Included in the trust protection provided by PACA is not only an elevated priority over other creditors but also the right to a pro rata distribution of trust assets in the event of insolvency.”). See also 49 Fed.Reg. at 45,735-36 (“Where a court is involved, USDA would recommend to the court that the available trust assets be distributed on a pro-rata basis to all beneficiaries who have protected their right to trust benefits.”). Two United States District Courts have analyzed whether one supplier/beneficiary is liable to another when one beneficiary receives a priority payment before the PACA trustee becomes insolvent, each reaching a different conclusion. Compare Fresh Kist Produce, LLC v. Choi Corp., Inc., 223 F.Supp.2d 1 (D.D.C.2002) (concluding that the defendant produce supplier was required to disgorge payments made to it by the seller), with H.C. Schmieding Produce Co., Inc. v. Alfa Quality Produce, Inc., 597 F.Supp.2d 313 (concluding that the supplier did not have to disgorge payments it received from the buyer).
5. The Fiduciary Relationship of PACA Beneficiaries.
It is a general proposition in debtor/creditor law, and the Supreme Court has held, that “except as forbidden by the bankrupt law, a debtor has the right to prefer one creditor over another, and that the vigilant creditor is entitled to the advantage secured by his watchfulness and attention to his own interests.” Blennerhassett v. Sherman, 105 U.S. 100, 117, 26 L.Ed. 1080 (1881). Under trust law, however, because of the nature of a co-beneficiary relationship, creditors who are also co-beneficiaries of a trust additionally owe their co-beneficiaries duties that contain a fiduciary element. See G. Bogert & G. Bogert, The Law of Trusts and Trustees § 191 (Rev.2d ed. 1979)(“Co-benefi-ciaries ... are in a fiduciary relation to each other .... ”)(cited in the Reporter’s Notes on Restatement (Third) Trusts § 104).
a. General Trust Law Duties of Co-Beneñciaries.
The duties owed to co-beneficiaries under general trust principles govern the duties that suppliers owe each other as PACA trust beneficiaries. See Fresh Kist Produce, LLC v. Choi Corp., Inc., 223 F.Supp.2d at 12 (noting that a dispute between two suppliers is “a dispute between two beneficiaries”), amended sub nom. Fresh Kist Produce, LLC v. Choi Corp., Inc., 251 F.Supp.2d 138 (D.D.C.2003). Under general principles of trust law, a beneficiary is liable to its co-beneficiaries for participating in a trustee’s breach of the trust. See Restatement (Second) of Trusts § 256(4) (“If one of several beneficiaries participates with the trustee in a breach of trust ..., [that] beneficiary is personally liable to the extent of the loss, and [the beneficiary’s] interest is subject to a charge for the amount of loss....”); Restatement (Third) of Trusts § 104(l)(c) (“A beneficiary is not personally liable to the trust except to the extent ... the trust suffered a loss resulting from a breach of trust in which the beneficiary participated.... ”). Comment f to Restatement (Third) of Trusts § 104 describes conduct which constitutes a beneficiary’s participation in a breach of the trust:
Certainly, the beneficiary participates in a breach of trust if the beneficiary performs, or joins in performing, an act the beneficiary knows is a breach. Otherwise, the question of what conduct of the beneficiary constitutes participation in a breach of trust is a question of degree. For example, a beneficiary has participated in a breach of trust if the beneficiary induced the misconduct knowing that it would or might be a breach of trust. However, mere knowledge of, or consent to, the breach, without more, is insufficient to constitute participation. ...
Restatement (Third) of Trusts § 104, cmt. f. The Reporter’s Notes on § 104, comment f, direct the reader to A. Scott & M. Ascher, Scott and Ascher on Trusts § 25.2.6.3 (5th ed., 2007), for more information “[o]n a beneficiary’s duty to other beneficiaries not to participate in a breach of trust.” Restatement (Third) of Trusts § 104, Reporter’s Notes on cmt. f. Professors Austin W. Scott and Mark L. Ascher suggest that co-beneficiaries have duties to one another beyond the duty not to participate in a breach of the trust: “Although there is not the same fiduciary relationship between trust beneficiaries as there is between them and the trustee, there is enough of a fiduciary element in their relationship to make it inequitable for one to seek to obtain an advantage over another.” Scott and Ascher on Trusts § 25.2.6.3, at 1866. Similarly, the late Professor George G. Bogert, and George T. Bogart, which the Reporter’s Notes on § 104 also cite, state that beneficiaries have duties to each other, at least to a certain extent, as fiduciaries. See G.G. Bogert & G.T. Bogert, The Law of Trusts and Trustees § 191 (“Co-beneficiaries ... are in a fiduciary relation to each other in the sense that one beneficiary may not secretly secure for himself a special advantage in the trust - 31-administration.”). Thus, the Court concludes that PACA beneficiaries, as co-owners of the equitable interest in the PACA trust, have some limited fiduciary duties to the other beneficiaries of the PACA trust, including at least the duty not to affirmatively seek an unfair advantage over their co-beneficiaries.
b. Case Law Addressing the Duties of PACA Co-Beneficiaries.
While no authority is precisely on point with the unique facts and issues in this case, two cases present contrasting conclusions regarding the trust responsibilities of PACA beneficiaries. In the end, the Court believes that Fresh Kist Produce, LLC v. Choi Corp., Inc. may come closest to reflecting Congress’ intent to protect PACA beneficiaries. What that means, procedurally, is that general trust principies protect PACA beneficiaries to the extent of trust law, but no more.
1) Fresh Kist Produce, LLC v. Choi Corp., Inc.
A plaintiff supplier, Fresh Kist, and defendant suppliers, J.C. Watson (“JCW”), Norfolk Banana (“Norfolk”), and Berkley Tomato (“Berkley”), in Fresh Kist Produce, LLC v. Choi Corp., Inc. all sold perishable agricultural commodities to a common produce dealer, Washington Wholesale Produce Company (“WWP”). See 223 F.Supp.2d at 4. On June 5, 2001, JCW filed a complaint against WWP for breach of contract, alleging that WWP owed JCW $75,946.20 for produce sold and also alleging that WWP was insolvent. See 223 F.Supp.2d at 5. WWP and JCW reached an agreement out of court in which WWP would pay a sum certain monthly to JCW until the balance was paid. See 223 F.Supp.2d at 5. After several payments over two months, WWP failed to make the payments, and JCW filed an amended complaint to obtain the balance owed. See 223 F.Supp.2d at 5. Fresh Kist then contacted JCW and asked if it would waive the potential conflict of interest in having a common attorney represent both Fresh Kist and JCW; JCW would not waive the conflict. See Fresh Kist Produce, LLC v. Choi Corp., Inc., 223 F.Supp.2d at 5. On August 28, 2001, Fresh Kist initiated an action against JCW and WWP requesting a temporary restraining order to enjoin the dealer from paying the rest of the amount owed to JCW, and establishing a non-party PACA claim procedure. See 223 F.Supp.2d at 5. Fresh Kist alleged that JCW, Norfolk, and Berkley “must disgorge the PACA benefits received from WWP after they learned that WWP was insolvent.” 223 F.Supp.2d at 5-6.
The Honorable Ricardo M. Urbina, United States District Judge for the District of Columbia, framed the issue in front of it as “whether PACA requires a beneficiary with knowledge of a PACA trust’s insolvency to set up a mechanism for all beneficiaries to submit claims for the remaining funds.” Fresh Kist Produce, LLC v. Choi Corp., Inc., 223 F.Supp.2d at 8. Recognizing that PACA trusts are governed by general trust principles, the court answered in the affirmative, noting: “Under trust law, co-beneficiaries are in a fiduciary relationship with each other so that one beneficiary may not secretly secure for himself a special advantage in the trust administration.” Fresh Kist Produce, LLC v. Choi Corp., Inc., 223 F.Supp.2d at 8 (citing G. Bogert & G. Bogert, The Law Of Trusts And Trustees § 191, at 478 (2d ed.1979)). The court found that, under PACA, “the law compels a beneficiary with knowledge of a trust’s insolvency to refrain from securing for itself a greater a